Ascent Media (AMGIA) 10-Q/A 2000 Q1 Quarterly report (amended)

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

/x/
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended February 29, 2000

or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              

Commission file number 0-1461

LIBERTY LIVEWIRE CORPORATION
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation)	13-1679856 (IRS Employer Identification No.)
520 Broadway, Santa Monica, CA (Address of principal executive offices)	90401 (zip code)

(310) 434-7000
(Registrant's telephone number, including area code)

THE TODD-AO CORPORATION, 900 N. Seward Street, Hollywood, CA 90038, August 31
(Former name, former address and former fiscal year, if changed since last report)

    Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /x/  No / /

    The number of shares of common stock outstanding at April 4, 2000 was: 9,040,218 Class A Shares and 1,747,178 Class B Shares.

THE TODD-AO CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FEBRUARY 29, 2000
INDEX

				Page
PART I—FINANCIAL INFORMATION
	Item 1—Financial Statements
		The following financial statements are filed herewith:
			Condensed Consolidated Balance Sheets, February 29, 2000 (Unaudited) and August 31, 1999	3
			Condensed Consolidated Statements of Income and Retained Earnings for the Six and Three Months Ended February 28, 1999 and February 29, 2000 (Unaudited)	5
			Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 28, 1999 and February 29, 2000 (Unaudited)	6
			Notes to Condensed Consolidated Financial Statements for the Six Months Ended February 29, 2000 (Unaudited)	8
Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations				12
PART II—OTHER INFORMATION
	Item 1—Legal Proceedings			15
	Item 6—Exhibits and Reports on Form 8-K			15
			Signature	15

2

THE TODD-AO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

ASSETS

	August 31, 1999			February 29, 2000
				(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents	$	9,739		$	9,652
Marketable securities		1,317			412
Trade receivables (net of allowance for doubtful accounts of $1,215 at August 31, 1999 and $1,275 at February 29, 2000)		18,169			22,828
Income tax receivable		634			493
Inventories (first-in first-out basis)		856			744
Deferred income taxes		755			755
Prepaid deposits and other		3,005			3,013
Total current assets		34,475			37,897
INVESTMENTS		892			4,365
PROPERTY AND EQUIPMENT—At Cost:
Land		4,270			4,270
Buildings		17,688			17,650
Leasehold improvements		18,603			19,384
Lease acquisition costs		2,187			2,187
Equipment		79,651			91,273
Equipment under capital leases		1,151			1,151
Construction in progress		4,803			2,954
Total		128,353			138,869
Accumulated depreciation and amortization		(48,305	)		(54,980	)
Property and equipment — net		80,048			83,889
GOODWILL (net of accumulated amortization of $2,875 at August 31, 1999 and $3,565 at February 29, 2000)		33,875			33,185
OTHER ASSETS		3,890			2,740
TOTAL	$	153,180		$	162,076

See notes to condensed consolidated financial statements.

3

THE TODD-AO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)

(Dollars in thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY

		August 31, 1999			February 29, 2000
					(Unaudited)
CURRENT LIABILITIES:
Accounts payable		$	5,465		$	5,127
Accrued liabilities:
	Payroll and related taxes		3,089			3,714
	Interest		762			503
	Equipment lease		1,588			1,404
	Other		4,706			3,641
	Income taxes payable		2,247			1,674
Current maturities of long-term debt			979			6,499
Capitalized lease obligations — current			336			324
Deferred income			914			1,053
Total current liabilities			20,086			23,939
LONG-TERM DEBT			65,520			61,866
DEFERRED COMPENSATION AND OTHER			1,439			1,303
DEFERRED GAIN ON SALE/LEASEBACK TRANSACTIONS			4,046			2,599
DEFERRED INCOME TAXES			3,254			3,254
Total liabilities			94,345			92,961
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock:
	Class A; authorized 30,000,000 shares of $0.01 par value; issued 8,124,333 at August 31, 1999 and 9,008,180 at February 29, 2000		82			91
	Class B; authorized 6,000,000 shares of $0.01 par value; issued and outstanding 1,747,178		17			17
Additional capital			37,887			47,306
Treasury stock (6,000 shares at cost as of August 31, 1999 and February 29, 2000)			(47	)		(47	)
Retained earnings			21,432			21,725
Accumulated other comprehensive income (loss)			(536	)		23
Total stockholders' equity			58,835			69,115
TOTAL		$	153,180		$	162,076
See notes to condensed consolidated financial statements.

4

THE TODD-AO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

FOR THE SIX AND THREE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED)

(Dollars in thousands, except per share amounts)

		Six Months					Three Months
		1999			2000		1999			2000
		Restated
REVENUES		$	62,335		$	64,675	$	28,388		$	31,119
COSTS AND EXPENSES:
Operating costs and other expenses			49,701			52,344		23,920			26,092
Depreciation and amortization			6,371			7,570		2,968			3,990
Interest			1,618			2,498		752			1,239
Equipment lease expense — net			420			1,409		365			480
Other expense (income) — net			(811	)		277		(879	)		175
Total costs and expenses			57,299			64,098		27,126			31,976
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE			5,036			577		1,262			(857	)
PROVISION FOR INCOME TAXES			1,671			284		365			(142	)
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE			3,365			293		897			(715	)
CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME TAXES OF $150			(293	)		—		—			—
NET INCOME (LOSS)			3,072			293	$	897		$	(715	)
RETAINED EARNINGS BEGINNING OF PERIOD			20,538			21,432
LESS: DIVIDENDS PAID			(280	)		—
RETAINED EARNINGS END OF PERIOD		$	23,330		$	21,725
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) available to common stockholders		$	3,072		$	293	$	897		$	(715	)
Effect of dilutive securities: 5% convertible debentures			129			—		62			—
Net income (loss) available to common stockholders plus assumed conversions		$	3,201		$	293	$	959		$	(715	)
WEIGHTED AVERAGE SHARES OUTSTANDING — BASIC			9,506,418			10,166,543		9,477,070			10,450,259
Effect of dilutive securities:
	Stock options		380,694			341,549		429,850			—
	5% convertible debentures		670,509			—		643,341			—
WEIGHTED AVERAGE SHARES OUTSTANDING — DILUTED			10,557,621			10,508,092		10,550,261			10,450,259
NET INCOME (LOSS) PER COMMON SHARE:
	Income (loss) before change in accounting principle — Basic	$	0.35		$	0.03	$	0.10		$	(0.07	)
	Change in accounting principle		(0.03	)		—		—			—
	Net income (loss)—Basic	$	0.32		$	0.03	$	0.10		$	(0.07	)
	Income (loss) before change in accounting principle — Diluted	$	0.33		$	0.03	$	0.09		$	(0.07	)
	Change in accounting principle		(0.03	)		—		—			—
	Net income (loss) — Diluted	$	0.30		$	0.03	$	0.09		$	(0.07	)

See notes to condensed consolidated financial statements.

5

THE TODD-AO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED)

(Dollars in thousands)

				1999			2000
				Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	3,072		$	293
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation and amortization			6,371			7,570
		Deferred income taxes			(56	)		—
		Deferred compensation and other			(93	)		(110	)
		Foreign currency exchange rate			—			(241	)
		Amortization of deferred gain on sale/leaseback transaction			(1,230	)		(372	)
		(Gain) on sale of marketable securities and investments			—			(391	)
		(Gain) on disposition of fixed assets			(190	)		(4	)
		Changes in assets and liabilities (net of acquisitions):
			Trade receivables, net		(2,824	)		(4,659	)
			Inventories and other current assets		557			353
			Accounts payable and accrued liabilities		(651	)		(1,037	)
			Accrued equipment lease		181			(184	)
			Income taxes payable, net		1,178			(681	)
			Provision for liabilities		(559	)		(26	)
			Other assets and liabilities		237			75
			Deferred income		109			139
Net cash flows provided by operating activities					6,102			725
CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchase of marketable securities and investments				(92	)		(674	)
	Proceeds from sale of marketable securities and investments				—			1,381
	Proceeds from disposition of fixed assets				136			23
	Capital expenditures				(8,640	)		(10,740	)
	Purchase of 50% investment in 103 Estudio, S.L.				—			(2,084	)
Net cash flows (used in) investing activities				$	(8,596	)	$	(12,094	)

6

THE TODD-AO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED)

(Dollars in thousands)

(Continued)

		1999			2000
		Restated
CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowings of long-term debt	$	10,846		$	10,547
	Payments of long-term debt		(10,068	)		(1,082	)
	Payments on capital lease obligations		(52	)		(12	)
	Proceeds from sale/leaseback transaction		8,809			—
	Proceeds from issuance of common stock		4			1,829
	Treasury stock transactions		(2,989	)		—
	Dividends paid		(280	)		—
Net cash flows provided by financing activities			6,270			11,282
	Effect of exchange rate changes on cash		—			—
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			3,776			(87	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			3,997			9,739
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	7,773		$	9,652
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest	$	1,392		$	2,706
	Income taxes	$	240		$	0

See notes to condensed consolidated financial statements.

7

THE TODD-AO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED)

(Dollars in Thousands, except per share amounts)

If complete notes were to accompany these statements they would be substantially in the same form as those to the Company's Financial Statements for the Year Ended August 31, 1999. In addition the following notes are applicable:

1.

In the opinion of management for the Company, all adjustments (which comprise only normal recurring accruals) necessary for a fair presentation of the results of operations have been included.

2.

The condensed consolidated financial statements include the Company and its wholly owned subsidiaries.

3.

During fiscal year 1999, the Company adopted the Statements of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities". The effect of the adoption was to record an expense, net of tax, of $293 in 1999. The quarter ended November 30, 1998 has been restated to reflect this change. The restatement had no impact on previously reported income before change in accounting principle.

4.

Basic earnings per share ("EPS") excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. When dilutive, stock options are included as share equivalents in computing diluted earnings per share using the treasury stock method.

5.

In June 1999 all of the issued and outstanding shares of Sound One Corporation ("Sound One"), a New York corporation, were acquired by the Company through a Merger Agreement signed June 8, 1999. Todd-AO East, Inc., an indirect wholly owned subsidiary of the Company, was merged into Sound One extinguishing all of the issued and outstanding shares of common stock of Sound One in exchange for a cash consideration of $11.50 per share. In consideration of the purchase, the Company paid $11,962 in cash for the common stock and an additional $353 in cash for costs incurred in connection with the acquisition. In addition, $800 is represented by non-compete agreements. Sound One is the leading post production sound facility in New York servicing the entertainment industry.

The acquisition is being accounted for under the purchase method of accounting. The following unaudited pro forma consolidated financial information for the six months ended February 28, 1999 is presented as if the acquisition had occurred on September 1, 1998. Pro forma adjustments for Sound One are primarily for amortization of goodwill and non-compete agreements, changes in

8

executive compensation, depreciation adjustments, interest expense on borrowings in connection with the acquisition, and income taxes.

	1999
Revenues	$	69,158
Net income before change in accounting principle	$	3,821
Net income	$	3,528
Net income per common share — before change in accounting principle — Basic	$	0.40
Net income per common share — Basic	$	0.37
Net income per common share — before change in accounting principle — Diluted	$	0.37
Net income per common share — Diluted	$	0.35

6.

In December 1998, November 1997 and December 1994 the Company signed agreements with its bank to implement the sale/leaseback of certain equipment. In December 1999, the Company exercised its option to purchase for $5,699 the equipment currently being leased under the December 1994 agreement. The purchase was funded by borrowings under credit facilities. The purchase price exceeds the equipment's estimated fair value, as determined by an independent valuation, by approximately $788. The Company recorded a pre-tax loss on equipment lease commitments in this amount during the fiscal year ended August 31, 1999. The valuation of the equipment originally sold and leased back under the December 1994 agreement was $11,218. The remaining agreements terminate on December 30, 2005 and December 1, 2002, respectively, and are being treated as operating leases for financial statement purposes. On December 29. 1998 and November 3, 1997 an aggregate of $8,809 and $8,500, respectively, of sound studio and video equipment was sold and leased back. The remaining deferred gain on the transactions to be amortized over two to five years is $2,599.

The net equipment lease expense is as follows for the six months ended:

	February 28, 1999			February 29, 2000
Equipment lease costs	$	1,650		$	1,781
Amortization of deferred gain on sale of equipment		(1,230	)		(372	)
Equipment lease expense, net	$	420		$	1,409

7.

In September 1998, the Company adopted a stock repurchase program under which 2,300,000 shares could be purchased from time to time in the open market or in private transactions. As of February 29, 2000, 1,621,756 shares had been repurchased. 1,555,303 of these shares have been cancelled and returned to authorized but unissued status. 60,453 of these shares were transferred to the Company's 401(k) plan. Purchases under this program were discontinued in April 1999.

In connection with the acquisition of Hollywood Digital, the Company issued convertible subordinated notes. In November 1999, the Company exercised its right to convert the existing Hollywood Digital notes (totalling $7,599) and in December 1999 converted the notes to 643,327 shares of Todd-AO Class A common stock.

8.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." The Company adopted SFAS No. 130 beginning in the first quarter of

9

fiscal 1999. Comprehensive income is defined as all changes in shareholders' equity, except those resulting from investments by or distributions to shareholders. The Company's comprehensive income is as follows for the six months ended:

	February 28, 1999			February 29, 2000
Net income	$	3,072		$	293
Unrealized gain on marketable securities and long-term investments		50			1,177
Less: Classification adjustment for gains included in net income		—			(224	)
Foreign currency translation adjustments		(31	)		(241	)
Tax effect on other comprehensive income		(79	)		(346	)
Comprehensive income	$	3,012		$	659

9.

The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," for its fiscal year ended August 31, 1999, which changed the way the Company reports information about its operating segments. The Company's business units have been aggregated into two reportable operating segments: sound and video services. The Other column includes corporate related items and income and expenses not allocated to reportable segments. The Company's reportable operating segments have been determined in accordance with the Company's internal management structure, which is organized based on operating activities. The Company evaluates performance based upon several factors, including segment income (loss) before income taxes, interest, depreciation and amortization of intangibles.

Summarized financial information concerning the Company's reportable segments is shown in the following tables:

		Sound Services		Video Services		Other			Total
Six Months Ended February 28, 1999:
	Revenues	$	22,181	$	40,154	$	—		$	62,335
	Income before income taxes, interest, depreciation and amortization of intangibles		3,208		9,688		129			13,025
	Identifiable assets		30,795		73,132		2,796			106,723
	Intangible assets, net		—		28,680		—			28,680
	Capital expenditures		1,536		7,104		—			8,640
	Depreciation expense		1,173		4,588		—			5,761
Six Months Ended February 29, 2000:
	Revenues	$	23,843	$	40,832	$	—		$	64,675
	Income (loss) before income taxes, interest, depreciation and amortization of intangibles		88		10,764		(207	)		10,645
	Identifiable assets		45,667		77,611		5,613			128,891
	Intangible assets, net		7,017		26,168		—			33,185
	Capital expenditures		6,977		3,763		—			10,740
	Depreciation expense		1,684		5,196		—			6,880

10

The following table reconciles segment income before income taxes, interest, depreciation and amortization of intangibles to the Company's consolidated net income:

	Six Months Ended
	February 28, 1999			February 29, 2000
Income before income taxes, interest, depreciation and amortization of intangibles	$	13,025		$	10,645
Amortization of intangibles		(610	)		(690	)
Interest expense		(1,618	)		(2,498	)
Depreciation		(5,761	)		(6,880	)
Provision for income taxes		(1,671	)		(284	)
Net income before change in accounting principle		3,365			293
Change in accounting principle, net		(293	)		—
Net income	$	3,072		$	293

10.

On December 10, 1999, the Company entered into an Agreement and Plan of Merger (the "Agreement") with Liberty Media Corporation (subject to stockholder approval) in which Liberty Media shall acquire 60% of the outstanding equity and more than 90% of the outstanding voting power of Todd-AO in a tax-free transaction. On March 6, 2000, the Agreement was amended to allow the merger closing to occur no later than June 9, 2000, to adopt the Amended and Restated Certificate of Incorporation which increases the authorized stock of the Company after the merger, and to provide for stockholder approval of the terms and conditions of the post-merger business combinations of Soundelux Entertainment Group and Four Media Company with Todd-AO. A special meeting of Todd-AO stockholders shall occur in May 2000.

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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
(Dollars in thousands, except amounts per share)

1.

Material Changes in Financial Condition

Under a new long-term credit agreement dated June 30, 1999 and expiring on May 31, 2004, the Company may borrow up to $80,000 in revolving loans until May 31, 2002. On that date and thereafter, the revolving loan commitment will reduce incrementally to nil by the expiration of the agreement. Prior to May 31, 2002 the Company may request an automatic extension of the revolving period of the facility for one year that will also extend the term period and the expiration date of the agreement. Prior to December 31, 2000 the Company may make a one-time request to increase the credit line by up to $20,000. Such increase is at the sole discretion of the Banks; however, the Company has the option to bring a new bank to the syndicate, thereby avoiding the Banks' discretion. The Company also has the availability of Standby Letters of Credit up to $20,000 under the facility. The credit facility provides for borrowings based on the Bank's Reference, CD, and LIBOR rates. The facility includes commitment fees on the unused balance of the credit facility. Other material restrictions include: the Fixed Charge Coverage Ratio may not be less than 1.25:1; Other Indebtedness (excluding up to $35,000 in Capital or Off Balance Sheet Leases, the convertible subordinated notes issued in the Hollywood Digital acquisition, non-recourse debt up to $50,000 of less than 100% owned Joint Ventures, $5,000 in purchase money mortgage financing and the existing TeleCine mortgage debt for the Charlotte Street property) may not exceed $10,000; Leverage Ratio is not to exceed 4:1 through May 31, 2001 (decreasing thereafter); Net Worth is not to be less than $54,000 plus net proceeds from issuance of equity plus 50% of consolidated net income subsequent to May 31, 1998 (excluding the effect of stock repurchases up to $3,000 from the closing date through the fiscal year ending August 31, 2000).

In January 1998 the Company entered into a three-year interest rate swap agreement for a notional amount of $10,000 to hedge the impact of fluctuations in interest rates on its floating rate credit facility. Under the agreement, the Company is obligated to pay 5.65% in exchange for receiving three-month LIBOR on the notional amount. Settlements are quarterly and the contract expires in March 2001.

Through August 31, 1999 the Company has signed three agreements with its bank to implement the sale/leaseback of certain equipment. An aggregate of $28,527 of sound studio and video equipment has been sold and leased back. The agreements, as amended, terminate on June 30, 2000, December 1, 2002 and December 30, 2005. All the agreements provide for interest based on LIBOR rates. In December 1999 the Company exercised its option to purchase for $5,699 the equipment currently being leased under the sale/leaseback transaction maturing in June 2000. The purchase was funded by borrowings under credit facilities.

The credit facilities are available for general corporate purposes, capital expenditures and acquisitions. Management believes that funds generated from operations, proceeds from the sale/leaseback agreements and the borrowings available under the restated credit facility will be sufficient to meet the needs of the Company at least through the end of 2000.

In June 1997, the Company used $15,760 under its credit facility to acquire the assets of Hollywood Digital. In May 1998, the Company used $14,000 to fund a substantial portion of the TeleCine acquisition. In June 1999, $11,962 was used to fund the Sound One acquisition. In September 1999, $2,084 was used to acquire a 50% interest in a Barcelona-based sound facility named 103 Estudio, S.L. As of February 29, 2000, the Company had $55,874 outstanding under the credit facility, which has been used principally to fund the acquisitions described and for capital expenditures.

12

In December 1999, the Company converted subordinated notes totalling $7,599 issued in connection with the Hollywood Digital acquisition into 643,327 shares of Todd-AO Class A common stock.

The Company expects capital expenditures of approximately $14,000 for its Los Angeles, Santa Monica, New York City, Atlanta and London facilities in fiscal 2000. These capital expenditures will be financed by internally generated funds and borrowings under credit facilities.

The Company does not believe that it is currently exposed to any material foreign exchange rate risk and, at present, does not have a policy for managing such risk beyond the utilization of local currency borrowings to fund foreign acquisitions whenever possible.

2.

Material Changes in Results of Operations

Six Months Ended February 29, 2000 compared to Six Months Ended February 28, 1999

Revenues increased $2,340 or 3.75% from $62,335 to $64,675. Increases in revenue due to the acquisition of Sound One in June 1999 ($5,807) were offset by lower utilization and activity in the Company's other sound services divisions ($4,145) while the Company's video services divisions remained flat, increasing revenues by $678.

Operating costs and other expenses increased $2,643 or 5.32% from $49,701 to $52,344. Cost increases related to the acquisition of Sound One ($4,619) were offset by cost decreases in the Company's other sound and video divisions as a result of the revenue decreases described above.

Depreciation and amortization increased $1,199 or 18.82% primarily due to the Sound One acquisition and capital expenditures.

Interest expense increased $880 or 54.39% primarily due to the Sound One acquisition financing.

Net equipment lease expense increased $989 primarily as a result of the sale/leaseback to the Company's financial institution of certain equipment in December 1998.

Net other expense increased $1,088 primarily due to costs incurred to date in connection with the Liberty Media Corporation merger ($810). The Company expects to incur additional costs in connection with the Liberty merger.

As a result of the above, income before taxes and net change in accounting principle decreased $4,459 from $5,036 to $577 and net income before change in accounting principle decreased $3,072 from $3,365 to $293.

The Company elected early adoption of Statement of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" in the prior year and reported the cumulative effect of a change in accounting principle, as described in Accounting Principles Board Opinion No. 20, in the amount of $293, net of income tax benefit in the amount of $150.

As a result of the above, net income after net change in accounting principle decreased $2,779 from $3,072 to $293.

Three Months Ended February 29, 2000 compared to Three Months Ended February 28, 1999

Revenues increased $2,731 or 9.62% from $28,388 to $31,119. Increases in revenue due to the acquisition of Sound One in June 1999 ($3,384) were offset by lower utilization and activity in the Company's other sound services divisions ($1,079) while the Company's video services divisions remained flat, increasing revenues by $426.

Operating costs and other expenses increased $2,172 or 9.08% from $23,920 to $26,092. Cost increases related to the acquisition of Sound One ($2,553) were offset by cost decreases in the Company's other sound and video divisions as a result of the revenue decreases described above.

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Depreciation and amortization increased $1,022 or 34.43% primarily due to the Sound One acquisition and capital expenditures.

Interest expense increased $487 or 64.76% primarily due to the Sound One acquisition financing.

Net equipment lease expense increased $115 primarily as a result of the sale/leaseback to the Company's financial institution of certain equipment in December 1998.

Net other expense increased $1,054 due to costs incurred in the current quarter in connection with the Liberty Media Corporation merger ($250) and to the reduction of expenses in connection with the Company's development projects reported in the prior period. The Company expects to incur additional costs in connection with the Liberty merger.

As a result of the above, income before taxes decreased $2,119 from $1,262 to a loss before taxes of $857 and net income decreased $1,612 from $897 to a net loss of $715.

Material Changes in Cash Flows

For the six months ended February 29, 2000, the Company generated $725 in cash from operating activities compared to $6,102 in 1999. Net income of $293 adjusted for depreciation and net amortization of $7,198 provided cash of $7,491 in 2000 compared to $8,213 in 1999. Trade receivables increased $4,659 in 2000 compared to $2,824 in 1999. Decreases in accounts payable and other liabilities were $1,714 in 2000 compared to an increase of $495 in 1999. Cash provided by operations supplemented by borrowings from the Company's credit facility were used to pay down accounts payable and other liabilities and to fund trade receivables in 2000 and cash provided by operations was utilized primarily to fund capital expenditures in 1999.

Borrowings from the Company's credit facility of $10,547 supplemented by net cash generated from the sale of marketable securities, other assets and the cash proceeds from issuing common stock totalling $3,709 were also used to acquire a 50% interest in a Barcelona-based sound facility named 103 Estudio, S.L. for $2,084 and to reinvest in capital assets of the Company.

Forward Looking Statements

When used in this document, the words "believes," "expects," "anticipates," "intends" and similar expressions are intended to identify forward looking statements. Such statements are subject to a number of known risks and uncertainties. Actual results in the future could differ materially from those described in the forward looking statements. Such risks and uncertainties include, but are not limited to, industry-wide market factors such as the timing of, and spending on, feature film and television programming production, foreign and domestic television advertising, and foreign and domestic spending by broadcasters, cable companies and syndicators on first run and existing content libraries. In addition, the failure of the company to maintain relationships with key customers and certain key personnel, more rapid than expected technological obsolescence, and failure to integrate acquired operations in expected time frames could also cause actual results to differ materially from those described in forward looking statements.

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PART II—OTHER INFORMATION

Item 1.  Legal Proceedings

The Company is involved in litigation and similar claims incidental to the conduct of its business. None of the pending actions is likely to have a material adverse impact on the Company's financial position or results of operations.

Item 6.  Exhibits and Reports on Form 8-K

(a)

. (1)  Exhibit 27 Financial Data Schedule.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE TODD-AO CORPORATION
May 29, 2001Date	/s/ M. DAVID COTTRELL   M. David Cottrell Vice-President, Controller and Chief Accounting Officer

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THE TODD-AO CORPORATION QUARTERLY REPORT ON FORM 10-Q FEBRUARY 29, 2000 INDEX
THE TODD-AO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
ASSETS
THE TODD-AO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (Dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
THE TODD-AO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE SIX AND THREE MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED) (Dollars in thousands, except per share amounts)
THE TODD-AO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED) (Dollars in thousands)
THE TODD-AO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 29, 2000 (UNAUDITED) (Dollars in thousands) (Continued)
THE TODD-AO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 (UNAUDITED) (Dollars in Thousands, except per share amounts)
PART II—OTHER INFORMATION
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